It now really is getting past time to hang out a warning flag on the performance of most Asian stock markets.

With share prices outside Japan up a weighted average of more than 100 per cent in US dollar terms over the past 10 months and 60 per cent over the past five months alone, euphoria and self-congratulation have broken out everywhere.

The fundamentals are once more looking good, you're told.

Foreign money is coming back in, economic indicators are turning positive and the big financial crisis is finally behind us.

It's not quite so. What has happened almost everywhere is that governments have tried to make up for the shortfall of foreign capital over the last two years by driving domestic interest rates down to create domestic liquidity as a substitute.

This, in a nutshell, is why markets are up. As the first chart shows, that doubling of share prices since September last year has been exactly matched with short-term interest rates falling to less than half their levels of that time.

You may argue that inflation has also gone way down, thus leaving room for interest rates to fall, and that, in any case, it is worthwhile to push interest rates down in a recession to stimulate things again.

Neither argument really works, however.

In the first place, this period of low inflation will not last long.

It is mostly the result of falling import prices and those import prices show firm signs of rising again.

If we had really achieved a structurally low inflation rate, as United States seems to have done, we might justifiably use this inflation argument; but, ask yourself, do you really believe that falling consumer prices, as we now have outside of Indonesia, is a normal state of affairs for Asia? Nor does it do to argue that interest rates should fall in a recession. A recession is a form of medicine, an adjustment process that both tells you that you have gone off the rails and let's you get back on them again.

Unless you take the full course of medicine you won't get back on those rails.

And this is what seems to have happened. Look at the chart of the US dollar exchange value of the Thai baht relative to the overall currency performance of the region.

The baht was a rigged currency until mid-1997. It then crashed and now it's rigged again.

This is a case of a lesson denied, an adjustment process aborted, and Thailand is not the only country to have done it.

Low interest rates are also sucking in imports again and current account surpluses are declining rapidly as a result.

What is more, while the money generated by the surpluses could have been used for domestic investment, in country after country it has instead been pushed back abroad to keep currencies rigged.

Hong Kong is in a better state here than most other Asian economies because our currency-board system does not allow us to play such games, but we are not immune from the trend.